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Banks shying away from unsecured lending market

Banks are shying away from unsecured lending market

Apnaloan.com Research Bureau

29 Apr 2008

Rising
instances of defaults and recovery woes have led banks
to shy away from lending to the unsecured market.

The
Reserve Bank of India's
report on Macroeconomic and Monetary Developments 2007-08 shows the rate of
growth in the personal loan portfolio of banks has dipped to 13.2 per cent to
Rs. 58,669 crore as on February 15, 2008, compared with 30.6 per cent in the
same period last year.

Major
players such as ICICI Bank, Citifinancial and GE Money have refrained from
growing their uncollaterised lending portfolio largely on account of
deteriorating risk return ratio.

Stung by
judicial intervention and regulatory raps following recent instances of excesses
by recovery agents, private and foreign banks and non-banking finance companies
exited the small ticket size personal loan segments (STPL). ICICI Bank, the
country's second-largest bank, had stopped lending to borrowers from the
sub-prime segment, while the biggest player in small loans, Citigroup, made its
processes more stringent.

Despite
the slowdown in the personal loan growth, outstanding on credit cards have
risen by 62.42 per cent to Rs. 6,502 crore as on February 15, 2008, as against
Rs. 4,003 crore on February 16, 2007. Banks are now encouraging consumers to
buy products through a credit card as it is more cost-effective and a quicker
means of payment.

ICICI
Bank, in its consumer goods financing, has moved from the post-dated cheque
system to the credit card payment mode. This has increased the ticket size
spending on credit cards.

Banks
have clearly rebalanced their loan portfolio, which is evident from the rise in
credit disbursements to the corporate sector.